Tax Scams to Watch Out For

It’s that time of year…. If you are among the millions of last minute tax filers, it is very important to be on guard against con artists who prey on our collective fear of the IRS. A few tips:

Stick with legitimate preparers who work from an office or storefront. While I do know legitimate tax preparers who work from home, there is a higher risk of dealing with a scam artist. Some criminals rent an apartment for a month (under an assumed name), distribute flyers offering cut rate tax preparation and then steal your private information. They can also arrange for your refund to be electronically deposited in their own bank account-before skipping town for good.

Beware of an empty waiting room- This time of year, a reputable tax preparer’s office should be a very busy place!

The IRS will not call or e-mail you. They prefer snail mail. The IRS has issued helpful guidance alerting us to the fact that they do not initiate contact with a taxpayer by phone or e-mail.

The IRS will not visit you unannounced. If agents appear at your door, they are most likely scam artists or practical jokers.

Ann Margaret Carrozza is a practicing attorney who also served as a New York State Assemblywoman. She is a regular legal contributor to TV and print media outlets.


The Other Tax

With April 15 around the corner, it is easy to lose sight of planning for transfer taxes. Didn’t know that helping your daughter with a down payment was taxable? No, not as income to her, but the giver is required to file a gift tax return if the size of the gift is over $14,000. Paying for your daughter’s wedding? You can avoid a gift tax bill by paying the caterer directly. Thought Life Insurance was tax free? It is free of income tax, not estate tax at death.

NYS has taxed all estates in excess of $1.0 since the year 2000. Now, the NYS budget, expected to be passed today, will raise that exemption to $2,062,500. This gets us closer to the federal exemption of $5,300,000. This will be a big benefit to many small businesses, which in the past, often had to be sold to pay estate taxes upon the owner’s death.

In recent years, we have seen the federal estate tax threshold fluctuate wildly. This should cause us all to keep an eye on both the NYS and federal estate tax thresholds- What goes up can (and probably will) come down again.

Ann Margaret Carrozza is a practicing attorney who also served as a New York State Assemblywoman. She is a regular legal contributor to TV and print media outlets.





Tax Breaks for Helping Mom and Dad

Are you among the 30 million Baby Boomers who are helping out an elderly parent? There may be a tax break for that.

In order to claim a parent as a dependent, you must provide 50% or more of their total support. Contrary to popular belief, the parent does not have to reside with you. However, if the parent does live with you, you will be able to factor in the fair market value cost of meals and lodging when determining whether you reach the 50% threshold.

Dependent status will allow you to deduct your parents’ non-reimbursed medical and dental expenses (subject to the 10% AGI threshold). In addition to this, you can deduct 35% of your parents’ caregiver costs, if you hired them in order to enable you to work.

There is no doubt that this is a challenging year for American taxpayers. Rates have increased while deductions and credits have been reduced. This is why it is more important than ever, to educate yourself about all available income tax deductions.

Ann Margaret Carrozza is a practicing attorney who also served as a New York State Assemblywoman. She is a regular legal contributor to TV and print media outlets.





Student Loan Crisis 2014

2013 began with the sobering news that total US student loan debt reached $1.0 trillion dollars.  The New York Federal Reserve Bank just released an even gloomier statistic in its Feb 2014 report:  Student loan defaults and delinquencies are at an all- time high of 11.5%.  This figure is probably much higher given that loans in deferment status don’t count as technically in default.  The difference between deferment and default is largely academic as it relates to consequences for our economy.  This is because neither group of borrowers is able to pay back this money.

Historically,  a college degree was a sure-fire route to middle or upper middle-income earning ability.  The reality today is very different.  College graduates find themselves entering a labor market with record high unemployment numbers.  The increasing number of students who don’t finish their degrees fare even worse out there.

There is a vicious cycle at work that will keep troubled borrowers mired in debt for decades to come:  Lack of good job opportunities makes default more likely.  Default, in turn, destroys a person’s credit score.  Employers are less than eager to take a chance on a job candidate with poor credit. 

Why are lenders putting young people in this miserable position by continuing to throw money at them (and their parents) with no view toward whether or not the person can handle the debt?  Unlike other forms of consumer credit, student loans are approved by an entity other than the lending source.  The college approves the loan applications.  For the vast majority of loans, the federal government is the funding source.  Once the college approves the loan, the federal government pays the college.  If the student defaults, it is not a setback for the college because they received their money.  For the student and the taxpayer, it is a different story, indeed.

The US Education Department recently proposed excluding those colleges and post-secondary training programs from federal student loan money, unless their graduation and graduate employment rates are adequate.  The proprietary colleges just won a federal lawsuit, thus  blocking implementation of the rule.  The Education Department has just submitted a revised rule to the US Office of Management and Budget. 

Do you think that we should keep the student loan “spigot” open, regardless of the potential consequences to the student?  Or do you think that we should somehow develop stricter lending criteria, thus limiting the potential adverse exposure for student borrowers?

Ann Margaret Carrozza is a practicing attorney who also served as a New York State Assemblywoman.  She is a regular legal contributor to TV and print media outlets.


How to Prevent your Estate from Going to your Daughter-in-Law

Without a thoughtfully constructed estate plan, there is a significant risk of your assets ending up in the wrong hands.

The typical plain vanilla Will that leaves everything to my children does, little to ensure that my grandchildren benefit upon the death of my child, as opposed to a son or daughter-in-law.  Even if I love my child’s spouse, the concern is that she will re-marry and my assets will be comingled with those of her new spouse.

Therefore, it is advisable to direct that assets otherwise passing to a child who predeceases me, go instead to my grandchildren.  This is easily accomplished by adding the words “per stirpes” (which is the Latin term for “through the roots”) after the name of my beneficiary.  If, for example, my entire estate goes to my sons, Mark and John, per stirpes, then John’s children will take his share in the event that he predeceases me.

The more common concern is ensuring that my grandchildren ultimately benefit even if my child survives me.  If, in the normal course of events, my son, John dies after me, can anything be done to prevent his wife (likely his primary beneficiary under his Will) from inheriting what were originally my assets?  My clients tend to have mixed feelings on this point.  Some resign themselves to a ‘what will be will be’ stance.  On the other end of the spectrum, are clients who leave everything in lifetime trust for their children.  This arrangement permits the child to benefit from the assets, but upon his or her death, they pass automatically to the grandchildren.  This is an especially advisable way to go if the child has creditor issues, an unstable marriage, or if I wish to avoid having the assets exposed to a second layer of tax within my child’s estate.[1]

 Another option is to leave everything to my children but add the following clause: “It is my sincere hope that my children take steps within their own estate planning to ensure that my estate assets eventually pass to my lineal descendants.”  My son can then blame it on me when setting the assets aside for the eventual benefit of my grandchildren.

The typical plain vanilla will is also incapable of shielding any portion of our assets from estate taxes or long-term care expenses.  The Federal estate tax exemption is is currently in excess of $5.0 million.  This has and likely will continue to fluctuate over the course of the next several years.  Moreover, many states, such as New York, have their own lower estate tax thresholds.  To reduce the tax bite, it may be advisable to create an estate tax trust.  We can then “gift” some part of our assets into the trust and thereby remove it from our gross taxable estate. Another type of trust can be used to shield one’s home from being lost to future possible long term care expenses. A simple Will, on the other hand, is incapable of protecting the home against claims that arise during life.

Every individual has unique planning needs, concerns and family dynamics. Most of us would benefit from a thoughtful and collaborative estate planning process. A simple boilerplate Will is usually not the way to insure that our ultimate objectives are satisfied.



Why We Need Spousal Refusal

Governor Cuomo’s proposed 2014 NYS budget would eliminate spousal refusal for community based long term care.  Granted, the term Spousal Refusal sounds mean-spirited.  Should an individual be allowed to legally walk away from his or her spouse’s long term care bills? Some background on the subject may lead you to respond affirmatively.

Long Term Care Coverage

The good news is that we are living longer. The corollary to this is that we are more likely than our parents to live to an age when we will require help with activities of daily living (ADLs). These are the less than glamorous functions of life- dressing, bathing, eating, and toileting.  Years ago, adult children (daughters…) took on the responsibilities of providing this care.  The best of intentions notwithstanding, this is not even an option for most of the adult children I know. The already precarious juggling act of managing careers, children, and carpools would be thrown into a death spiral if we had to add the changing and feeding of an elderly parent to the mix.  Today, these caregiving functions are very likely to be outsourced.  The costs of this can be enormous.

It comes as an unpleasant surprise to families that Medicare has very limited long term care coverage. Upon discharge from a hospital, Medicare and a Medicare Supplement policy together will cover only up to the first 100 days in a rehab facility. Those who need help beyond this time period are facing costs in excess of $100,000 per year in many areas of the US.  It is not uncommon for someone to lose their house and all of their savings because of a need for nursing home care.

Spousal Protections 

In an effort to protect the well spouse from complete financial ruin, anti-spousal impoverishment laws were enacted on the federal level in the late 1980s. In 2014, the well spouse (or community spouse) is permitted to retain up to $117,240 in assets while his or her spouse is covered under the Medicaid program.  What if an individual has more than this? Enter- Spousal Refusal.

Spousal Refusal laws prevent the Medicaid program from refusing to provide coverage to an eligible individual just because his or her spouse is ‘refusing’ to cover the cost of the necessary care. This is not the end of the story! Each state’s Medicaid law requires an applicant to assign to the program his or her rights to enforce support obligations against all responsible parties including a spouse. 

The reality of spousal refusal is very different from the politically motivated sound bites decrying multi-millionaires on Medicaid.  If, for example, my husband has a stroke and we apply  for Medicaid  for him,  I may decide to declare spousal refusal in order to protect my nest egg of $300,000 .  Am I doing this because I am a mean witch? Not necessarily.  In every case I see, spousal refusal is declared because the well spouse is sick to her stomach at the very real prospect of hemorrhaging through the couple’s life savings.  Those of you who have moral qualms with the practice should perk up with the following:  Several months after I declare spousal refusal I will likely get a letter from my new pen pal- the regional Medicaid agency, that reads something like this:  “Dear Ann, to date, we have provided $42,000 toward the cost of your husband’s care.  Kindly send us a check in this amount at your earliest convenience.”  You may ask what the purpose of the spousal refusal exercise was? Well, even if I send them a check in the requested amount, I will typically be ahead of the game.  This is because the Medicaid program can only ask me to reimburse them for the substantially lower rate that they have paid the nursing home or home care agency.  If I send the check in, I have probably gotten at least a 25% discount on what the private pay rate would have been.  To further reduce the financial outlay, a person in this situation may wish to consult with an elder law attorney to present legal and equitable arguments on his or her behalf.  As a practicing elder law attorney, I might argue that my client needs to be permitted to retain assets in excess of the Community Spouse Resource Allowance ($117,240) because she has her own health care concerns.  If she is in her seventies, I argue that she has a statistically long life expectancy and needs to retain adequate resources for her own retirement years. Perhaps she will lose pension income upon the death of her spouse. She may be supporting an adult child who is unemployed (very common today…) She may have a child with a developmental disability and is concerned about protecting assets for him or her.  These are not frivolous points.  These are very real concerns that affect someone’s mental state and by extension their health.  Once all of these arguments are presented, the Medicaid agency will usually request a reduced contribution.  At the end of the whole process, spousal refusal usually results in a shared public-private long term care payment arrangement.

Home Care v. Nursing Home Care

The right to declare spousal refusal for nursing home care is protected by federal law.  Therefore, absent a federal change, states are not able to eliminate spousal refusal in the nursing home context.  However, there is no such federal protection for spousal refusal in the home care context.  This allows state politicians to propose eliminating it.  This is proposed every year, without fail, by the Governor of NYS.  It is touted as a savings measure for the state budget.  The reality, of course, is that the elimination of home care spousal refusal will cause countless New Yorkers to consider premature nursing home admission, where the right to declare spousal refusal is protected by federal law. The cost to the state for nursing home care is, of course, many times higher than comparable care at home.

Future of the Medicaid Program

The confluence of an aging population, soaring health care costs and government cutbacks will likely spell the end to the Medicaid program as we know it in the not too distant future.  The baby boomers amongst us should consider long term care insurance options. 

In the meantime, it is critically important that seniors inform themselves about all legally available options for protecting their assets.  Without these protections, the danger is that seniors will go without needed care in order to protect their savings. 

Ann Margaret Carrozza is a legal contributor to TV and print media outlets.  She also served as a New York State Assemblywoman.


Love Contract for the President of France?

Congratulations to the newly public couple, Francois Hollande and Julie Gayet.  I have two pieces of advice for Ms Gayet: Don’t get too comfortable and do get a Love Contract.

While it is true that no legal document can keep one’s partner from straying, a Love Contract can most assuredly protect Ms. Gayet from the humiliating situation that the President’s soon to be former partner, Valerie Trierweiller is enduring on the world stage. 

A Love Contract is a legal document akin to a pre-nuptial or post-nuptial agreement in that it deals with who gets what in the event of a breakup. It goes far beyond this, however, and can be used as a blueprint or mission statement for the relationship.  Ideally, it will reflect the couple’s fitness, philanthropic, social, romantic and financial aspirations.  It is also much more flexible because the couple does not have to be married in order to have one.  Of potential importance to Ms. Gayet are the bad behavior sanctions that can be crafted into the document.

When I am working with a couple and one or both has a history of straying, I recommend that the Love Contract contain infidelity sanctions.  Many celebrities have these clauses.  The sanctions are usually monetary.  Again, you probably can’t prevent your partner from cheating if he or she is inclined to do so.  However, you can and should be compensated if it does occur.

I also recommend that post-breakup living arrangements be embodied in the Love Contract.  This is especially important when the relationship abode is owned or leased by one of the parties individually. For anyone who finds themselves living with their lover in a presidential palace, without having won an election, it should be clear who will be on the curb come breakup.  This provision could have saved Ms. Trierweiller from the present uncertainty over where she will live.

The Love Contract process will require frank discussions and some introspection.  This will likely strengthen the relationship going forward. 

Ann Margaret Carrozza is a practicing attorney who also served as a New York State Assemblywoman.  She is a regular legal contributor to TV and print media outlets.